Eu Tax Harmonization Strikes Discord

British Tabloids Fan Fears Ahead Of Summit

LONDON — Britain's biggest-selling tabloid newspaper, Rupert Murdoch's Europe-bashing Sun, recently ran a front-page photograph of German Finance Minister Oskar Lafontaine with the headline: "Is This the Most Dangerous Man in Europe?"

Much of the rest of the anti-European tabloid press here jumped on the bandwagon and fanned a controversy that may dominate the next summit of European leaders on Friday and Saturday in Vienna.

It is the last summit before 11 of the 15 European Union member states begin adopting a single currency Jan. 1, and the demonization of Lafontaine by the British tabloids is not unrelated to that issue.

Lafontaine, the left-winger who heads Chancellor Gerhard Schroeder's Social Democratic Party, has suggested that the introduction of the single currency should be followed by a harmonization of tax policies, an end to the veto that individual member states enjoy concerning taxes, and a program to fight unemployment through higher spending.

The tabloids have seized on much of this, particularly the proposal for tax harmonization, as proof that Britain's sovereignty is again under attack from untrustworthy continental politicians and that the aim is to force low-tax Britain to raise its taxes to the heights that burden Germans.

Politicians and financial experts say the argument is overblown and distorted, but the tabloids have a major influence on public opinion in Britain. Some officials see the current campaign as threatening to undermine Prime Minister Tony Blair's efforts to persuade skeptical Britons to adopt a more benign view toward Europe.

Schroeder and French Prime Minister Lionel Jospin have endorsed Lafontaine's call for tax harmonization, further fanning the flames in Britain. British officials have responded by threatening to use their veto to block any changes they do not like.

Guardian columnist Hugo Young, author of a recent book that critically examines Britain's historic arms-length attitude toward Europe, said Blair has been put on the defensive by the tabloid press in the same way as his predecessor, John Major, and has shown himself to be "as ripe for their bullying, as vulnerable to their distortions (and) as alarmed by their presumed political impact."

At the same time, he said Lafontaine's bulldozer tactics suggest he does not place "a high priority on smoothing Britain's path into the single currency."

Blair has promised a referendum after the next election, in 2001 or 2002, on whether Britain should adopt the single currency. The furor in the tabloid press may foreshadow the kind of resistance he will encounter as the potential referendum approaches.

Some financial experts have said there is a case for tax harmonization in Europe, and it does not necessarily mean uniform tax rates. Schroeder made the same point in an interview Thursday with London's Financial Times.

"We will never have a complete harmonization because of differences in countries' tax bases," he said. "But I stress the finance minister has the backing of the government when he demands steps in this direction."

Successive German governments have tried to bring corporate tax rates in line to stop huge capital outflows into countries such as Luxembourg and Ireland with low corporate taxes.

Lafontaine also has made clear he wants tax havens such as the British-administered Channel Islands and the Isle of Man to go.

He particularly inflamed the anti-Europeans in Britain with a suggestion that EU member states should abandon their right to veto Europe-wide tax policies and instead decide such matters by majority votes. British Chancellor of the Exchequer Gordon Brown said that is "simply not going to happen."

Lafontaine and other Socialist leaders in Europe also are pushing for Europe-wide spending policies aimed at creating jobs and triggering growth.

The strict financial and budgetary discipline that European governments have had to impose on themselves to qualify for the single currency has contributed to the current high of unemployment in Europe. Germany and France, which together have 7 million unemployed, account for 40 percent of the jobless in the European Union.